Geely drives in for M&A loan

HONG KONG, March 3 (IFR) – Zhejiang Geely Holding Group , China’s largest privately owned carmaker, is raising €3.05bn (US$3.8bn) to fund its acquisition of an 8.2% stake in Swedish truckmaker AB Volvo, in one of the country’s biggest outbound investments this year.

BNP Paribas and China Citic Bank have underwritten the financing and launched it into senior syndication in mid-February. The borrowing is split into a €2.1bn five-year term loan and a €950m 12-month bridge, borrowed via two separate special-purpose vehicles. Both tranches come with guarantees from Geely Sweden Holdings, which also owns Volvo Cars.

Banks looking to join are required to commit at least €300m to the term loan and €200m to the bridge for top-level all-in prices of 185bp and 130bp over Euribor, respectively. The due date for early-bird commitments is March 7. A bank meeting was held last month in Hangzhou, the capital of Zhejiang province, where Geely is headquartered.

A few Chinese and global banks are considering joining the loan, as would be expected for a financing from one of China’s top carmakers.

However, recent developments at Geely have raised concerns among some market participants that the company’s acquisition binge could attract regulatory scrutiny.

Geely founder, controlling shareholder and chairman Li Shufu revealed on February 24 – only a couple of months after agreeing to buy the stake in AB Volvo in December – that he had built up a stake of around 9.7% in German rival Daimler, the maker of Mercedes cars and trucks.

The Daimler stake cost US$9bn, according to Reuters, while the AB Volvo deal was for around €3.25bn, according to Swedish daily Dagens Nyheter. These acquisitions are Geely’s largest since it bought Volvo Cars eight years ago.

Geely’s purchase of the stake in AB Volvo is still pending approval from the Chinese government. AGGRESSIVE ACQUIRERS Overseas acquisitions have come under closer scrutiny in China since regulators began clamping down on capital outflows in 2016. Privately owned conglomerates, including HNA Group , Anbang Insurance Group, Dalian Wanda Group and Fosun Group, have felt the heat after Chinese authorities instructed major banks in the country last July to check their exposure to the quartet.

A week ago, the China Insurance Regulatory Commission announced it was seizing control of Anbang Insurance, whose overseas acquisitions included New York’s Waldorf Astoria hotel. It said Anbang’s chairman had been prosecuted and the company had violated laws and regulations which“may seriously endanger its solvency”.

The CIRC’s action follows a string of disposals in recent months from both HNA and Wanda, which are under pressure to refinance their debt.

Geely’s recent purchases accelerate an overseas expansion push that started in 2006, when it acquired a stake in the company that makes London’s iconic black cabs. Geely acquired Volvo Cars from Ford Motor in August 2010 for US$1.8bn, and completed its takeover of London taxi maker LEVC in 2013.

The AB Volvo stake was structured such that Nomura International and Barclays Capital Securities would first buy the shares from activist investor Cevian Capital and then sell to Geely. At its end, Cevian completed the sale in January.

Geely’s purchase of the stakes in AB Volvo and Daimler makes the Chinese carmaker the biggest individual shareholder in the two rival companies. Last week, in a first sign of the fallout from Geely’s stake purchase in Daimler, AB Volvo decided to drop Hakan Samuelsson, CEO of Geely-owned Volvo Cars, from its board. (Reporting By Yan Jiang Editing by Prakash Chakravarti and Chris Mangham)